What are the structural shifts in the global economy?

• Global market indices
• Currencies
• Cryptocurrencies
• Fixed Income
• Commodity sector news
• Key data to move markets this week
• Global macro updates

US Stock Indices

Nasdaq 100 -3.91% MTD and +38.40% YTD
Dow Jones Industrial Average -3.57% MTD and +3.44% YTD
NYSE -3.68% MTD and +4.21% YTD
S&P 500 -4.39% MTD and +14.27% YTD

Global stock markets have lost about $3tn in value this month.

Mega caps: A very good week for the mega caps with Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Tesla and Nvidia all up. 

Nasdaq futures rallied after a strong outlook from Nvidia. It said sales will be about $16 billion in the three months ending in October, reinforcing the hype around artificial intelligence that’s continued to boost tech stocks this year despite the sharp rise in interest rates over the same period.

Energy stocks had a generally poor week as worries over slowing global growth with the potential weakening of demand hit investor sentiment Apa Corp (US), ConocoPhillips, Chevron, Phillips 66, Occidental Petroleum, Shell, and Halliburton are all down this week. Baker Hughes is slightly up and Energy Fuels is significantly up.

Materials and Mining stocks were mixed this week as a firmer USD weighed on metal prices. Yara International, DuPont de Nemours Inc., Freeport-McMoRan, CF Industries Holdings, Mosaic, and Nucor Corporation are all down, while Newmont Mining, Sibanye Stillwater, and Albemarle Corporation are all up this week.

European Stock Indices

Stoxx 600 -3.80% MTD and +6.72% YTD
DAX -4.37% MTD and +12.96% YTD
CAC 40 -3.35% MTD and +11.94% YTD
IBEX 35 -3.38% MTD and +13.20% YTD
FTSE MIB -4.76% MTD and +19.10% YTD
FTSE 100 -4.92% MTD and -1.76% YTD

Other Global Stock Indices 

MSCI World Index -5.34% MTD and +10.57% YTD
Hang Seng -11.12% MTD and -9.78% YTD

Currencies

The USD strengthened this week against major currencies. The GBP is +5.16% YTD but -0.90% for the month against the USD. The EUR is +1.50% YTD but -1.18% for the month against the USD. The Euro fell to more than a two-month low against the dollar on poor PMI data showing a continuing slowdown in Eurozone business activity. Sterling also dropped on poor PMI data. The S&P Global/CIPS composite Purchasing Managers' Index (PMI) tumbled to 47.9 in August from 50.8 in July. It is the lowest reading since January 2021. This caused investors to reduce their expectations of the Bank of England’s and the ECB’s peak rates.

Cryptocurrencies

Bitcoin -0.96% MTD and +74.50% YTD
Ethereum -2.50% MTD and +50.78% YTD

Bitcoin posted its biggest gain in almost six weeks due to increasing optimism that global central banks will pause interest-rate hikes to prevent recession. Cryptocurrencies rose over the week as yields started to climb down on Wednesday on weakening business activity data.

Fixed Income

US 10-year yield to 4.18%.
German 10-year yield to 2.52%.
UK 10-year yield to 4.47%.

US government bond prices have fallen throughout August with Treasury yields reaching their highest level since November 2007. Yields fell on Wednesday due to poorer than expected PMIs which indicate that perhaps the US will not get away with the softest of landings despite a resilient labour market. Bond yields in the UK and the Eurozone fell on Wednesday due to poor PMI data after rising all week.

Commodities

Gold futures to $1,944.70 an ounce.
Silver futures to $24.70 per ounce.
West Texas Intermediate crude to $78.89 a barrel.
Brent crude to $82.90 a barrel.

Oil has had a tough week with concerns about a global slowdown rising as weakening PMI data from the US, the UK and Europe add to worries about China’s deceleration and weakening post-Covid economic recovery.

Gold prices rose this week due to weaker US data in the run up to likely interest rate guidance from global central bankers at Jackson Hole, Wyoming. All eyes will be on Fed Chair Jerome Powell’s speech on Friday, but expectations are rising that ECB interest rates may have peaked due to poor economic performance data coming from the Eurozone, despite some worries over still sticky core inflation.

Note: As of 5 pm EDT 23 August 2023

Key data to move markets this week

EUROPE 

Friday: German GDP, German IFO Business Climate, Current Assessment and Expectations, and a speech by ECB President Christine Lagarde.
Tuesday: German GfK Consumer Confidence.
Wednesday: Spanish Harmonized Index of Consumer Prices, Eurozone Consumer Confidence, Eurozone Business Climate and Economic Sentiment, German CPI, and German Harmonized Index of Consumer Prices.
Thursday: German Retail Sales, German Unemployment Change and Unemployment Rate, Eurozone Core Harmonized Index of Consumer Prices, Eurozone Harmonized Index of Consumer Prices, Eurozone Unemployment Rate, and ECB Monetary Policy Meeting Accounts.

UK

Saturday: A speech by Bank of England Deputy Governor, Monetary Policy Ben Broadbent.
Monday: The London Stock Exchange is closed for the August Bank Holiday.
Thursday: A speech by Bank of England Chief Economist Huw Pill. 

US

Thursday: Initial jobless claims, Durable Goods Orders, Nondefense Capital Goods Orders, and Jackson Hole Symposium.
Friday: Jackson Hole Symposium, a speech by Fed Chair Jerome Powell, Michigan Consumer Sentiment Index, and UoM 5-year Consumer Inflation Expectations.
Saturday: Jackson Hole Symposium.
Tuesday: Housing Price Index, S&P/Case-Shiller Home Price Indices, Consumer Confidence, and JOLTS Job openings.
Wednesday: ADP Employment Change, Core Personal Consumption Expenditures, GDP, Personal Consumption Expenditures Prices, and Pending Home Sales.
Thursday: Initial jobless claims, Core Personal Consumption Expenditures- Price Index, Personal Income, Personal Spending, and Chicago Purchasing Managers’ Index. 

Global Macro Updates

Will the Fed be under par? US Federal Reserve (Fed) Chair Jerome Powell's comments on Friday at the annual Jackson Hole economic symposium will be scrutinised for clues about the Fed’s future interest rate path. The theme of the meeting is “Structural Shifts in the Global Economy.” For Chair Powell the question may be, are we back to the pre-2008 financial crisis world of the “neutral” interest rate being higher? And if so, what will this mean for an economy used to lower borrowing costs? It is clear that it might slow business investment and hiring, curb household spending, and, eventually, negatively impact overall economic growth.

The slowdown in growth is continuing as S&P Global said its flash US Composite PMI index, which tracks manufacturing and service sectors, fell to a reading of 50.4 in August from 52 in July, the biggest drop since November 2022. While August's reading was the seventh straight month of growth, it was barely above the 50 level separating expansion and contraction as demand weakened for both manufactured goods and services. Service sector business activity growth was the slowest since February at 51.0 in August, and the Manufacturing PMI fell deeper into contraction territory at 47.0 down from 49.0 in July, the fourth straight month of contraction.

The Eurozone sinks further down. The Eurozone’s HCOB's flash Composite Purchasing Managers' Index (PMI) dropped to 47.0 in August from July's 48.6, its lowest since November 2020. The services PMI fell to 48.3 from 50.9, its first time below the 50 breakeven mark this year. Manufacturing activity has been in decline since mid-2022. The headline index rose to 43.7 from 42.7, its first uptick in seven months but still in contractionary territory. The disappointing growth numbers may give the ECB reason to pause hiking interest rates in September, as sharp contractions in business activity pointed to deepening economic pain in Europe. German business activity also contracted at the fastest pace in over three years in August and much more than analysts expected, data showed on Wednesday, deepening the downturn in business activity across the eurozone.

Adding more BRICS? The BRICS (Brazil, Russia, India, China and South Africa) agreed to expand their BRICS group from 1 January 2024. They have formally invited Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates to join their group. A summit of the BRICS is being held this week in Johannesburg, South Africa, with about 50 heads of state and government attending. Prior to the event, the BRICS said that nearly two dozen countries had formally applied to join the club from across the “global south”, a reference to non-western nations. The BRICS are looking to increase non USD trade and increased trade in local currency. Some members, such as Brazil, have focused on creating a common currency for trade and investment between members as a means of reducing their vulnerability to dollar exchange rate fluctuations. This idea has been deemed largely infeasible given the divergent macroeconomic conditions in the member countries. As noted by Reuters, the USD's share of official FX reserves fell to a 20-year low of 58% in the final quarter of 2022, and 47% when adjusted for exchange rate changes, according to International Monetary Fund data. However, despite talks of “de-dollarisation”, the dollar still dominates global trade. It is on one side of almost 90% of global forex transactions, according to Bank of International Settlements Data.

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